Beijing officials in charge of Macau affairs must have breathed a huge sigh of relief last week. But while crisis was averted, it also proved once again what can happen when a government fails to read the pulse of its people.

In a dramatic U-turn, Chief Executive Dr Fernando Chui Sai-on bowed to public pressure on Thursday and scrapped a contentious bill that would have granted lavish retirement packages to top officials.

Former chief executives were to get a stipend every month equivalent to 70 per cent of their monthly wage for as long as they were unemployed; it gave immunity from criminal charges to a serving chief executive; and retiring ministers would have got a one-off payment of up to 30 per cent of their monthly wage for each month of service.

"I'm fat, but I'm not going to fatten myself," Chui said in an apparent bid to lighten the mood as he killed the bill. It came after thousands of protesters converged on the legislature urging him to resign if he refused to withdraw the bill.

Local analysts compared last Sunday's protest in Macau - thought to be the biggest in the former Portuguese colony since the 1999 handover - with the mass demonstration in Hong Kong in 2003 over a proposed national security law. Half a million people took to the streets, forcing the Tung Chee-hwa administration to shelve the bill, which was based on Article 23 of the Basic Law that requires the city to pass laws prohibiting acts of "treason, secession, sedition or subversion". The issue is still causing controversy.

The protest was a turning point for Beijing's policy on Hong Kong. Previously content to take a hands-off approach, Beijing tightened its grip after 2003, arguing that for "one country, two systems" to work, the city must shore up national security - or "two systems" would be out of the question.

Seen in this light, Chui's backdown on the perks bill has wider implications for Macau's development. Politics in Hong Kong and Macau are vastly different. Pre-handover talks were poles apart: in Hong Kong the Sino-British negotiations were like a diplomatic wrestling match; while talks with the Portuguese went much more smoothly. This is partly down to the strong pro-Beijing forces in Macau - which have continued to grow since the handover without any real challenge. But in Hong Kong, there has been a continuous tug of war between the two sides.

This has seen Beijing take a more hands-on approach in Macau - and the city has been perceived as more "obedient". An example of this is Macau's national security bill being passed into law in 2009 with very little resistance, except from pro-democracy activists. Macau was held up as an example in urging Hong Kong to fulfill its constitutional duty under Article 23.

But problems have emerged in Macau, with development focused on the casino business, and Beijing has urged the city to diversify. The wealth gap has widened and the government's attempts to pacify the public with cash handouts have failed.

Macau is also watching Hong Kong's path towards full democracy in 2017, and its people are starting to call for the same - but unlike Hong Kong, Macau's Basic Law does not guarantee this right. The Macau government recently reiterated that there was no plan yet for universal suffrage to elect its future leader because it would involve amending its Basic Law.

The perks bill reversal may be seen as a victory for protesters, but it is clear Beijing is keen to avoid Hong Kong's difficult talks on political reform spilling over to its usually quiet neighbour. It seems Beijing will have to review its policy on both cities.